H&M feels obsolete after slow first quarter sales growth

STOCKHOLM — H&M, the world’s second-largest fashion retailer, reported on Wednesday a smaller-than-expected sales increase in the latest sign it is struggling to compete with Zara owner Inditex.

H&M’s share price fell 6% in early trading, trailing the broader Swedish market.

According to the Swedish group, sales measured in local currency for the period, the first quarter of the financial year, increased by 3% year-on-year.

Jefferies said local currency sales, which the market has been watching the most, were significantly lower than consensus forecasts, suggesting that actual sales were down 3% in February.

Brokers called the results “worse than they feared” and said they expected a loss in earnings before interest and taxes (EBIT) when the group reported full first quarter results on March 31. said.

Credit Suisse also forecast a “significant” operating loss.

H&M is in the midst of a program of job cuts and other cost reductions and said net sales were up 12% year-on-year to 54.9 billion crowns ($5.26 billion).

In contrast, market leader Inditex on Wednesday reported a 13.5% increase in sales from February 1 to March 13 and a 27% increase in net profit for the fiscal year ending January.

Budget player H&M’s profits slumped last year as it failed to fully pass on soaring raw material, freight and energy costs to keep price-sensitive customers.

The Royal Bank of Canada (RBC) expects input costs to continue to rise in the first quarter for retailers and said the second quarter will continue to be under pressure.

Anticipating potential improvements at the end of the second quarter and the beginning of the third quarter, he cited lower prices, improved womenswear and a new creative director to appeal to H&M’s core customer base.

Marie Mannes and Anna Ringstrom